Page 1 Weighted Average Cost Of Capital WACC Page 2 Weighted Average Cost Of Capital WACC What is 'Weighted Average Cost Of Capital - WACC' ? Weighted Average Cost Of Capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. ? Weighted Average Cost Of Capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. Page 3 Weighted Average Cost Of Capital WACC What is 'Weighted Average Cost Of Capital - WACC' ? Weighted Average Cost Of Capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. ? Weighted Average Cost Of Capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. Sources of Capital ? All sources of capital, including : ? common stock ? preferred stock ? Bonds ? any other long-term debt are included in a WACC calculation. A firmâ€™s WACC increases as the beta and rate of return on equity increase, as an increase in WACC denotes a decrease in valuation and an increase in risk. Page 4 Weighted Average Cost Of Capital WACC What is 'Weighted Average Cost Of Capital - WACC' ? Weighted Average Cost Of Capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. ? Weighted Average Cost Of Capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. Sources of Capital ? All sources of capital, including : ? common stock ? preferred stock ? Bonds ? any other long-term debt are included in a WACC calculation. A firmâ€™s WACC increases as the beta and rate of return on equity increase, as an increase in WACC denotes a decrease in valuation and an increase in risk. Why it Matters ? It's important for a company to know its weighted average cost of capital as a way to gauge the expense of funding future projects. The lower a company's WACC, the cheaper it is for a company to fund new projects. ? A company looking to lower its WACC may decide to increase its use of cheaper financing sources. Page 5 Weighted Average Cost Of Capital WACC What is 'Weighted Average Cost Of Capital - WACC' ? Weighted Average Cost Of Capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is proportionately weighted. ? Weighted Average Cost Of Capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. Sources of Capital ? All sources of capital, including : ? common stock ? preferred stock ? Bonds ? any other long-term debt are included in a WACC calculation. A firmâ€™s WACC increases as the beta and rate of return on equity increase, as an increase in WACC denotes a decrease in valuation and an increase in risk. Why it Matters ? It's important for a company to know its weighted average cost of capital as a way to gauge the expense of funding future projects. The lower a company's WACC, the cheaper it is for a company to fund new projects. ? A company looking to lower its WACC may decide to increase its use of cheaper financing sources. Calculate WACC ? To calculate WACC, multiply the cost of each capital component by its proportional weight and take the sum of the results. The method for calculating WACC can be expressed in the following formula:Read More

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